Forced conversion of marijuana businesses to non-profit? I doubt it.

I’ve learned a lot from my friend Jon Caulkins, a drug policy expert and professor at Carnegie-Mellon (we were among eight co-authors on the RAND report for Vermont, and he’s helped and encouraged me over the years).  Jon worries about for-profit marijuana businesses, and prefers non-profit businesses. Fair enough, but let’s think about practicalities.

In an article in the National Review, “Against a Weed Industry,” Jon suggests, for the eight states where recreational cannabis is legal, “The Justice Department can simply send a letter warning that if the company does not shut down within a reasonable time, its owners will be arrested and its assets seized. . . . The Trump administration could phase out those for-profit businesses in favor of nonprofit organizations by issuing a new memo. . . . Shutting down state-licensed businesses could feed the black market, but not if nonprofit organizations are allowed to take their place.”

But I can’t see that happening. It would be very hard, politically and practically, to replace for-profit cannabis sellers “in favor of” non-profit sellers. Getting from here to there is not easy. I think it’s about as unlikely the far-fetched death penalty for (hard) drug dealers that President Trump is said to suggest.   And it’s much less likely than sales of marijuana by governments, which is already happening.

How exactly would the assets find their way into the hands of the new nonprofit owners?

I can’t see a political decision (for that’s what it would be) to take these assets from their owners – with or without compensation — and give them or sell them to someone else. Expropriation has a bad name. Just because the assets don’t end up in government hands doesn’t change the substance – this is expropriation.

But to then let someone else perform the same activities as the entities whose assets were seized strikes me as a non-starter. Again, this is a political prediction – just as I predicted the municipality of North Bonneville, Washington, would get away with violating federal law to the extent private sellers do. I’m just as convinced on this one.

Here are three ways, none of which I think works, as a practical matter.

1.  Eminent domain seizure and then sale of seized assets? That would pay the marijuana owners for the value of what they lost. That would cost a bundle. The revenue from reselling those assets to non-profits would hardly make up for the cost: Since they wouldn’t profit, they wouldn’t pay much. Litigation to determine the value of the seized assets would be highly speculative, time-consuming, and expensive. Seizure with compensation happens all the time. Such seizure for private use is highly controversial, but constitutional. But will states (or the federal government) pony up the money and fight the lawsuits? A non-starter, I think.

2. Civil asset forfeiture? Civil asset forfeiture is controversial enough. But to seize the assets and then let someone else (1) take those assets and (2) perform the activities that caused the seizure strikes me as an implausible plan – another non-starter from a presentation or political perspective. I understand Jon’s logic, but I think this nuanced middle ground unlikely. If the federal government starts shutting down cannabis sellers on the ground that they are illegal, it’s hard to imagine them setting up new sellers (who succeed to the old sellers’ inventory and property). Not impossible, but hard. This option is kind of like eminent domain — the government takes assets, but in this option, need not pay for that taking under the Due Process clause, which the Constitution requires, on a theory that this is ia civil forfeiture theory after a crime. That sounds quite implausible politically. Imagine the outrage.

3.  Bankruptcy? Once a federal shut down happens, a for-profit firm will stop taking in money, so will go bankrupt eventually. Then a trustee in bankruptcy will become the owner of the firm’s assets and will sell them to non-profits – the only buyers legally qualified to own them. That’s the equivalent in many ways of eminent domain seizure. Only creditors of the for-profit business will get anything, I suppose. I can’t see any jurisdiction making that stick. Federal action against a handful of marijuana businesses could be enough to cast a pall on them all, drying up credit, and encouraging landlords to shut the businesses down.   At that point, existing un-sued businesses would presumably conduct fire sales to non-profits in advance of bankruptcy.  That seems chaotic.  Non-profits would scramble to get the blessing of licensing authorities.  That would take time, and wouldn’t happen all at once.  Some applicants would not deserve licenses if Jon’s plan is to make sense, and they might find ways to appeal denial of licenses. Early licensees would have a field day as desperate sellers waited for new bidders to qualify.  That predictable chaos would be an argument for opponents of the kind of shift Jon suggests.  Disruption in supply to consumers would be a minor concern, compared to the disruption caused by the free-for-all of non-profits maneuvering to push aside the owners of assets worth billions and billions of dollars.


As we wrote in RAND-Vermont, “if Vermont adopts commercial legalization from the beginning and later realizes that it prefers another supply architecture, change might be more difficult. Commercial interests, at that point vested, would presumably oppose any proposal to take away their profits. Because it is more readily reversible in light of information yet to be obtained, monopoly is a more adaptable method of legalizing than private commerce.” The same is true for a non-profit model.   Members of Congress are jumping on board the legalization bandwagon in its for-profit form. The cat is out of the bag.


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